AngloGold Returns to Profit in Fourth Quarter as Costs Drop

  • South African miner produces $160 million free cash flow
  • Falling currencies, lower fuel price help gold miner

AngloGold Ashanti Ltd., the world’s third-largest producer of the metal, returned to profit in the fourth quarter as costs declined.

The company’s adjusted headline earnings were $40 million in the quarter ended Dec. 31 from a loss of $52 million three months earlier, the Johannesburg-based company said in a statement Monday. Production from continuing operations climbed 4.4 percent to 997,000 ounces while all-in sustaining costs fell 8.2 percent to $860 an ounce.

AngloGold has cut its costs per ounce by 54 percent in the past three years through a combination of trimming spending and increasing production from new low-cost mines. The company has $2.19 billion of net debt, or about 1.5 times earnings, a 30 percent reduction from a year ago, chiefly due to the $820 million sale of its Cripple Creek & Victor mine to Newmont Mining Corp.

“The strategy is working in both bear and bull markets,” Chief Executive Officer Srinivasan Venkatakrishnan said on a call with reporters. “What you’re also seeing is the benefit of currencies and lower fuel prices coming through.”

Declines in the South African rand and Australian dollar against the dollar last year helped AngloGold produce $160 million of free cash flow in the fourth quarter.

The shares rose 2.5 percent to 174.30 rand by 9:37 a.m. in Johannesburg, taking the increase this year to 62 percent.

Venkatakrishnan said his three targets for 2016 are improving performance at its South African operations including a 10 percent increase in production; coming up with a development plan for its Obuasi mine in Ghana with a joint-venture partner; and brownfields exploration in Mali, Guinea and Australia.

The company will use any free cash flow to “chip away at the debt,” Venkatakrishnan said. It bought back $810 million of a $1.25 billion high-yield bond in September.

The remainder of that bond, which has a call option in July, “is an attractive target for a cash-generative AngloGold,” Patrick Mann, a Johannesburg-based analyst at Deutsche Bank AG, wrote in a note.

AngloGold sees production in 2016 at 3.6 million ounces to 3.8 million ounces, compared with 3.95 million ounces in 2015, an 11 percent drop on the previous year.

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